Reserve Bank keeps OCR at 3.5 percent

The Reserve Bank has left the official cash rate unchanged at 3.5 percent, and signalled it will remain there for the next two years.

Governor Graeme Wheeler said the economy is expected to grow at an annual rate of between 3 and 4 percent for the next two years, underpinned by robust construction activity and more people in work, while Auckland's housing market is again picking up pace.

Reserve Bank Governor Graeme Wheeler. Photo: RNZ / Diego Opatowski

Lower oil prices are also helping boost household's purchasing power and reducing the cost of doing business.

But Dr Wheeler pointed out risks in the form of lower dairy payouts, drought conditions in parts of the country and the high dollar - all of which will weigh on growth.

Despite the economy growing, it was not translating into higher prices, he said.

Inflation is expected to fall to about zero in the March quarter and remain low this year, this resulting from the high dollar, low global inflation and recent falls in petrol prices.